Equity-Based Financing and Corporate Governance: Evidence from Islamic Banks in Indonesia

Equity-based financing (EBF) is a contract that promotes justice, and spirituality, and is aligned with Shariah values. However, EBF in Islamic banks (IB) is lower than in debt-based financing (DBF). This study aims to demonstrate the importance of the characteristics of the board of directors (BOD) and the Shariah Supervisory Board (SSB) in the distribution of EBF. This study examines 14 IBs from 2009 to 2020, yielding 153 bank-years. This study found that the education level of the members of the SSB increased EBF. Independent BOD and the size of the SSB reduced EBF. However, when the sample is divided based on ownership, IB that are owned by state/regional government-owned conventional banks (hereafter SOCB) or private-owned conventional banks (hereafter POCB) produce different research outcomes. In SOCB, the SSB plays a larger role in increasing EBF than it does in POCB.